FORT SMITH : Project citings a ‘misunderstanding’
Posted on Sunday, November 16, 2008
FORT SMITH — A federal audit accuses the Fort Smith Housing Authority of violating federal regulations on a public housing project and misspending more than $ 500, 000.
The Office of Inspector General performed the audit at the request of the U. S. Department of Housing and Urban Development’s Office of Public Housing. Findings were issued Oct. 22.
The audit charges that the housing authority misspent $ 400, 000 in state funds because a contractor was hired without competitive bidding and was not required to put up a bond equal to the contract amount.
It also states that the housing authority wrongly pledged restricted assets as guarantees on two loans totaling nearly $ 2 million and that the agency spent more than $ 104, 000 to buy land that cannot be used for housing.
HUD officials in Little Rock have received the audit and the housing authority’s response, authority Executive Director Ken Pyle said. He said the authority is preparing arguments to present to HUD.
“We believe we are going to obtain a favorable decision from HUD,” said Pyle, a former city director who joined the housing authority in March.
HUD spokesman Patricia Campbell said Thursday that it is too soon to make a determination on the audit findings.
The agency will work over the next two months on a plan to resolve any issues, she said.
“Our purpose is not so much to punish as to work with them so they are in compliance with the regulations,” Campbell said.
The audit examined activities of the housing authority in connection with construction of the $ 4. 2 million first phase of the 50-unit North Pointe project. The development, which is complete, will replace the city’s Ragon Homes in north Fort Smith.
The authority in 2006 established a company called North Pointe Limited Partnership to finance, build, own and operate North Pointe. Its main partner and majority shareholder was Alliant Credit Facility, according to the audit.
Two construction companies bid on the project, but both exceeded the construction estimate, the audit states.
Rather than advertise for new bids or work with the companies to reduce their bids, North Pointe Limited Partnership hired a different company, ERC Construction Group of Barling, for $ 4. 2 million without going through the federally required bidding process.
Also, ERC was not required, contrary to federal regulations, to put up a bond equal to the contract amount but was allowed to provide a $ 630, 000 line of credit, which the audit pointed out was less than 15 percent of the contract amount.
The inspector general recommended the authority justify its actions on the bidding process or return $ 400, 000 of the contract amount to the Arkansas Development Finance Authority, the state agency that granted the local agency HOME Investment Partnerships Program money for the project.
In response to the audit, Pyle wrote that since North Pointe Limited Partnership is a private company, it was not required to follow federal procurement regulations. He also denied the auditor’s position that the partnership was under the control of the housing authority and should have been required to follow federal regulations.
Pyle acknowledged Wednesday that some procurement rules were broken.
“We, the housing authority, believe we are operating inside the rules now,” he said. “It’s my belief that no one ever intended to go outside the rules. I think it was a misunderstanding.”
He said the housing authority plans to argue to HUD that it will pass a resolution “to make sure future procurements are done by the rules.”
He also said it has not been determined if the partnership will participate in the 67-unit second phase.
Demolition work for the second phase has begun, but Pyle said the housing authority still is trying to put together its financing package. If it cannot do so by the end of January, he said, preparation work on the project, such as infrastructure improvements, may be delayed.
The inspector general’s audit contends that the housing authority wrongly pledged restricted assets to guarantee two loans that went to North Pointe Limited Partnership.
The first was a $ 75, 000 loan on Nov. 28, 2006, from Alliant Capital Ltd., Alliant Credit Facility’s main shareholder. Alliant Capital is a privately owned company that sponsors affordable-housing tax credit partnerships, according to its Web site.
The second was a $ 1. 9 million construction loan from Stearns Bank National Association on April 3, 2007, according to the audit. The loan was used to pay for part of the $ 4. 2 million firstphase construction cost.
The audit states that the housing authority would have been responsible for repayment of the loans and could have lost some of the assets if the partnership had defaulted.
Pyle responded that there were no restricted assets used to guarantee the loans, adding that both loans were repaid, so no harm was done.
He also argued that there were no HUD regulations barring the pledging of restricted assets for loans until June 20, 2007. The inspector general replied that the regulations did previously exist and that only clarifications of existing regulations were issued on that date.
The audit asserts that the housing authority wrongly spent more than $ 104, 000 on the purchase of land on Williams Lane in north Fort Smith — land that isn’t zoned for housing.
The audit states that the authority sought to have the land rezoned but the application was denied by the Fort Smith Planning Commission.
“If the authority cannot use the land for housing purposes as required by federal regulations, it should return the $ 104, 198,” the auditor wrote.
Pyle responded that the housing authority still wants to use the land for housing and plans to reapply for a zoning change in December. He suggested it could be used for a third phase of the North Pointe housing project.
In the authority’s response to the audit, Pyle agreed that federal procurement regulations were not followed in obtaining architectural and legal services and said the housing authority will repay $ 26, 048.
The authority also agreed to repay $ 4, 400 spent on background checks on people who were not public-housing tenants.
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